As Tim said, I think Microsoft is a learning machine. It's got quite a few
smart people. We really try to listen to customers in the marketplace and to
things going on around us. And many people I don't think stop and think, but the
Microsoft we know today is a company that has in fact morphed probably five or
six times in its 25-year history, in order to adapt to the changing conditions
around it. And certainly we find ourselves in a time of flux as great as any
that we've known in the history of the company. And so we find it incumbent on
us to pay attention to what's going on that engages all the members of this
ecosystem and try to figure out what is our way forward. Next slide, please.

At the end of the day, it is all about choice. When I started giving these,
people said, "Well, hey, it's consumers that want choice." The reality is that
everybody wants choice. As an individual developer, you want choice. As a
customer, you want some choices. As governments, ultimately, you want choices.
So I want to talk a little about some of the choices I think we all face
together in the course of the next few years.

When we talk about development choice, there are a number of different
things that immediately come to mind.

The question of language. And language itself in the computing
environment has been one of continuous evolution, and we expect that to
continue.

Community. Clearly a very important aspect of the open source
environment — I mean, this group calls itself a community. I think
community is not [a] unique notion. One of the things I tried to highlight in my
comments in New York was that in fact Microsoft has always had a developer
community itself. In fact, it numbers in the millions. But we in fact haven't
related — for a variety of reasons — to that community the way that you relate
to each other. And by observing that and how that works, we find a lot of merit
in the aspect of what you do, and are trying to emulate that in some things.

The source model. In the sense of, "How do you develop? What are the
tools you use for development?" The platform that you target these things to. All
are choices that developers make, whether they're individuals or corporate
members.

Then you have the choice of distribution. There's been lots of
experimentation in the last three decades as people have done more and more work
in software. There's the open source concept, which is the hallmark of this
conference. There were the shareware notions and the freeware notions, which to
some extent I think were a progenitor of some aspects of open source. And then
there were what you might think of as the commercial or mixed models, where
companies like Microsoft choose to provide some technology on a commercial basis
and some we actually contribute through either standards efforts or other
mechanisms — for example, academic programs — largely to try to continue to
bootstrap the ecosystem and help it move forward. Because we recognize that we
benefit from that ecosystem, and we want to continue to have the opportunity to
benefit from it.

People have licensing choices. There's the Berkeley licensing. I
mentioned that in 1982 I started a supercomputer company, and we were designing
machines that had no previous architecture that was really quite similar, and so
we had to build our own tools, our compilers, and in fact our own operating
system. You know, I took in my company a Berkeley license and we built an
operating system — a UNIX operating system — based on that. So I have personal
experience about the benefits from being able to stand on the shoulders of the
great work that was done by people like Bill Joy and others in their academic
careers.

There's the shared source license, which is essentially the umbrella
name that Microsoft has chosen for a family of software products that we offer
to our customers. We've offered a small number of these than in the past, but we
do find legitimate reasons to offer a wide array of customers a quite varied
array of shared source licenses. And in fact, I totaled them up last night. We
probably had two or three of these in effect when I gave this speech in May and
said we would do more. And today we have eight. And so we're quite aggressively
pursuing providing source access to people, but in a very specific licensing
regimen.

There are the traditional commercial licenses, which cover most of the
products that people buy today. There's the GPL, and there's the
public domain.

Then you get down to business choice. What is the business that you're
going to be about? You can be in the business of offering services. And
in fact Microsoft has recognized [this], courtesy of the Internet revolution, but more
and more there almost has to be a service component to every software product in
the future. That wasn't true in the past, but we think it will be more true in
the future. And we clearly have begun to adjust our business in order to support
that.

There's the packaged software model. There are different forms of
distribution. There's embedded software and appliances, and specific products
that are shipped with hardware. There are many different business models that
people confuse.

[Slide:

"Software as a business Microsoft's choice: the commercial
software model..."]

We happen to like, and will continue to pursue, a commercial software
model.

Each of these choices ends up having some long-term policy implications —
either in terms of its effect on the ecosystem, the sustainability of your
investment, or ultimately, the form of the business that you take on.

So software as a business is a model that Microsoft believes in. It's one we
think is important in this ecosystem, in terms of having adequate research and
development spending over a long period of time. And we will continue to have
this be our choice. I guess ultimately the market will tell us whether or not
that choice is a good one, or whether it's to be supplanted by some other
predominating model. But right now, we think it will be important option for
people, and we will continue to pursue it.

The software industry is a critical industry in this country, and
increasingly a critical industry elsewhere in the world. If you just look at the
U.S. economy, it's an integral part today. There are 148,000 commercial
companies in the software industry today, and they provide two million jobs. These
are companies who actually pay people to develop software, and then sell that
software. And we think that that is going to continue. It won't go away
overnight.

The net result is this feeds the ecosystem, because through that employment
and through the corporate profits, this industry in the United States last year
paid 28 billion dollars in taxes — which, in our society, is the way that we
redistribute the wealth that's created in these companies — in order to feed the
ecosystem, through government programs, through academic programs, and things
that generally support our society, of which we all benefit. More to the point,
this industry exported 121 billion dollars worth of products out of this
country, and that clearly has been an important part of the economy. The net
effect of that is that it's taught every country that in the future they're
going to have to have a software industry.

And so this questions of the ecosystem. This questions the licensing regime
and its impact. And ultimately, [it's] even an important policy matter for heads
of state, because if they want to have a software industry, we think that they
have to in fact foster an ecosystem and a culture within their society that says
that people benefit from the fruits of their labor. And where those things are
intellectual properties — that too should be respected and paid for. Next
slide.

[Slide:

"Learning from Open Source Expanded community programs
Expanded source access: 'shared source' Range of licenses for
different customers, partners, and the intellectual commons Still
provided under a commercial model"]

So Microsoft certainly is attempting to learn from the open source movement
at large. We've expanded, in quite dramatic ways, our community program. We've
recognized that people do in fact seem to relish the opportunity to interact with
each other when they have a shared interest, and in fact interact directly with
our developers. And while that hasn't been our practice in the past, since May
3rd we've actually begun to foster the involvement of our developers in a
variety of the access and community programs, and we'll continue to expand
that.

We've expanded our source access, as I mentioned earlier, to have a broad
range of licenses.

One thing I think is hard for some people to understand is in fact the scope
or scale of the business that Microsoft is in today, on a worldwide basis. We do
65 percent of our business outside of the United States. Every time we ship a
product, it's pretty much demanded that we deliver it instantly in about seven
to nine languages and within ninety days in as many as thirty-five or forty
languages. And it takes a huge effort to be able to do that on a worldwide
basis. We have a huge range of customer requirements that range from military
requirements of the United States and others to, just traditional, individuals
and consumers at home.

And so we recognize that we need to have and will continue to expand the
range of licenses, both for the product as product but increasingly for the
source access or tools that depend on source access for these products in the
future. But at the end of the day, we think that we can offer some of these
things and still do it under a commercial model.

So those are my remarks I'd like to offer today to the community. Make sure
that you understand what it is that is really driving us to have this concern
about your choice, in particular around a licensing regime and what the long-term
implications of that are for this community as a part of the overall worldwide
software community.

Thank you for your attention.

Tim O'Reilly:

From the nunber of red hats out in the audience I think you probably know who
our next speaker is. Michael Tiemann was the founder of Cygnus Support, and then
it became Cygnus Solutions, and then became part of Red Hat. But Michael was one
of the very first open source — actually, he was a free software entrepreneur, I
should say. He started with GPL Software and he's basically
been on that path ever since. And I think Michael is probably the best exemplar
there is of somebody who sees that even with the GPL, there is an enormous
potential for a software business. And so he's here to tell us about why that's
so.